Airports Show Their Colors

Cover Story

Airports Show Their Colors

While some airports in Europe prefer simply to oversee their ground service providers, others adopt a dual role as airport operator and ground service provider. Richard Rowe looks at how three major European airports tackle the subject of ground handling.

By Michelle Garetson/p>

By Richard Rowe

April 2002

Much of Europe may now have its own currency, but this latest step towards uniformity has done little to iron out some of the wrinkles of history, at least in aviation. On the ground, traditional structures, ongoing deregulation, and different management models all ensure that Europe's airports adopt a variety of approaches to ground handling. Depending on factors such as size, ownership, and history; European airports run the gamut from regarding ground handling as something to be avoided to an important activity that demands proactive management. A handful of airports even see it as a function best performed by the airport itself.

Ground handling in Europe is now talked about in relation to the 1996 European Commission (EC) Directive No. 96/67, which called for the liberalization of ground handling markets at European Community airports. Although, as its critics say, conceived erratically and implemented slowly, the Directive has now opened up a market that was largely monopolized by airports and/or national flag carriers.

For some airports, it brought greater competition to already liberalized markets; while for others, it resulted not only in a rethink of services in the light of competition, but also a reconsideration of what competition meant in terms of overall airport security, safety, and service quality.

This is not to overestimate the impact of the Directive. Airports that had previously provided ground services did not suddenly throw in the towel at the first whiff of competition. Similarly, airports that had always stayed clear of such activity didn't suddenly strip off and dive in. For most, the Directive simply solidified a course of action already taken.

Detailed discussions of the EC Directive can be found elsewhere, but one immediate result was a dramatic drop in handling prices. Sniffing an opportunity, some airlines used eager new participants in freshly opened markets as an excuse to hammer down prices.

This is of great concern to Gérard Borel, General Counsel of the airport body, ACI Europe, who feels that reductions in price have seen a parallel reduction in quality, with potential airport-wide repercussions.

"Delays at check-in, or for embarking on buses, could have consequences for actual take off or transfer operations," says Borel. "It should be possible for the airport authority in charge of overall management to have a real, but neutral, control of the different operations — especially relating to service quality. This is very difficult under the current regulatory framework."

The decision whether to work with ground handlers or to become one of them can be as applicable to airports as airlines. The question is whether ground handling is part of the core business of an airport company or whether it should be farmed out to third-party service providers. Is ground handling a potential millstone or a potential revenue stream?

Airports such as London Heathrow, one of seven UK airports run privately by BAA, choose to oversee and proactively manage rather than participate in ground handling. Heathrow sees more than 63 million passengers a year and is home to one of the world's most physically constrained yet highly liberalized environments. Terminal 3, with its 16 million passengers a year, has eight handlers alone, while the airport overall has 13 handlers.

Heathrow's goal is to maximize capacity but knows it can only do so by working closely with its airside community. EC Directive rules state that an airport cannot itself limit the number of handlers, but member states and airports can impose specific rules of conduct.

In 1999, the Airport Users Committee (AUC) was formed at Heathrow to help implement the Directive. Two years later, the AUC formed a 15-strong sub group made up of airlines and ground handlers (chaired by BAA Heathrow), designed to tackle ground handling issues. The AUC and its sub-group remain instrumental in Heathrow's efforts on the ground.

"We embarked upon a joint strategy to promote best practice and improve ramp discipline," explains Ben De Rosa, Ground Handling Manager, London Heathrow. "We have now reached a point where we all talk to each other."

The strategy focuses on four main areas of cooperation: Measurement, Education, Enforcement, and Actual initiatives.

Airports 1Taking each in turn, extensive modelling is central to the measurement process. "If a handler wants to add operations at a terminal or enter the market we look at traffic flows to see whether they can be accommodated," De Rosa told GSE Today.

Investments have been made in a GSE planning tool to help fathom out detailed parking plans and storage needs, while Heathrow also employs a strategic stand planning tool designed to keep ground handlers and their customer airlines as close together as possible. Additional modelling exercises are being introduced inside the different baggage halls (to focus on output rather than just throughout), as is an upgrade of the airport's vehicle database.

Heathrow's education efforts are largely used as a safety tool. In addition to the usual poster campaigns in break rooms, new employees see best practice training videos when they pick up their ID badges. Airport teams also visit the worst five companies who fail roadside checks and the worst five for accidents. They are walked through measures to prevent problems arising in the first place. De Rosa reports a significant reduction in accident and incident numbers.

Education cannot work without a degree of enforcement, although Heathrow doesn't like to use the word 'policing'. The emphasis is on working together rather than just finger wagging, a task that is helped considerably by having handler groups in place for each terminal, and genuine handler input.

The airport conducts initiatives such as 'Operation Clean Sweep,' which sees airside teams working with handlers to identify vehicles that are badly parked, or in bad shape. Similarly, Heathrow is strict on adherence to licence conditions, and companies that deviate are quickly visited.

Ground handlers need not always run to the airport when they have problems. As De Rosa explains, Heathrow employs a parking self help system whereby all handlers have contact numbers for their counterparts and all GSE has the contact number of its operating company on the side. If one company's GSE is parked in someone else's area, handlers can resolve the issue themselves.

Audits are also undertaken on a quarterly basis looking at handler performance and everything from first and last bag delivery to emissions on motorized GSE. Separate to the audits, handlers are rewarded for their efforts and Heathrow supervises 'Operator of the Year' and 'Most Improved Operator' awards, as well as a system of on the spot awards for individual employees.

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De Rosa acknowledges that the airport itself has plenty to do to make the ramp a more efficient place of work. This includes specific initiatives, such as improvements to the Terminal 3 arrivals baggage hall, as well as wider measures such as the installation of video cameras to determine geographical 'hot spots', and improving ground markings and signs.

Looking ahead, Heathrow is about to launch what it terms a 'Turnround Plan'. This comes in response to a recent UK Health and Safety Executive document that calls for a central and single responsible figure for each turn, be it an airline station manager or a handling representative.

According to De Rosa, all these initiatives form the basis of the next step in managing ramp safety at Heathrow, which will involve looking at the issue from a behavioural standpoint. "Really, we have got such liberalization here and so many physical constraints that we simply have to do these things," he comments.

At the other end of the scale to London Heathrow is Germany's Munich Airport. Another major international airport, it, too, is focused on achieving airside excellence, but does so as both airport operator and ground handling competitor.

Munich has always had its own handling operation, but saw a challenge in early 1999 when the liberalization process prompted the arrival of a third-party handling competitor on the ramp in the shape of Aviapartner.

Airports 2Today, despite Aviapartner's proven ability as a quality service provider, the airport retains its dominant market share. "This underlines the difficulties of some third parties to match the particular expectations of the airlines," claims Philipp Ahrens, Assisting Manager to the Director of Finance, Ground Handling Services at Munich.

It may also underline available market share and tight operating parameters for new entrants. Like other German airports that lost monopolies, Munich has strongly refuted accusations that it is well placed to use its infrastructure monopoly to charge higher rates for central infrastructure services.

Certainly, there is a genuine dilemma at airports where competition is required and yet large infrastructure is operated by the airport. Ahrens says that prices are transparent and the relationship with its competitor is good. He also notes that the EC recently sent consultants to examine how the Directive was being fulfilled at the airport. "We support and acknowledge the monitoring process as a good thing as we are confident in the quality of our services," says Ahrens.

But he admits that the question of infrastructure is an essential point. "Every airport has a different infrastructure and different opportunities for third party handlers," explains Ahrens. "Therefore, the EU Commission has to take into consideration the enormous variety of individual situations at airports, which makes further liberalization in this field not advisable."

The big question is whether a further opening of the handling market at Munich would promote "the desired quality that every airport is after and which the overall air traffic system requires," adds Ahrens.

Clearly, being an airport operator and a player on a competitive ramp requires a careful touch. "We always try to be fair to our third party handler; we will not give them any 'presents', but there will not be unfair competition. We will always try to provide them with all they want within the regulatory framework."

The ground handling department at Munich is an important profit center and one that is happy to take its expertise elsewhere. It has worked closely with the new airport in Athens and is currently providing consultancy services for baggage handling processing in Brussels.

Liberalization has, of course, had some consequences for Munich Airport. "Competition means not only lower revenues [for the airport] but it also means an even greater identification with quality and performance," says Ahrens. "This is the best way to differentiate oneself from other handlers, who might be working for a similar or a slightly lower price. Especially after September 11, airlines are focusing more and more on issues such as quality and safety."

This liberalization, together with outsourcing of ground services and global consolidation, has combined to create business opportunities for ground
handling providers. And there have been few better in seizing those opportunities than Fraport, the operator of Frankfurt Airport.

Fraport is a perfect example of an airport operator that not only continues to dominate its home ground handling market but has also aggressively pursued overseas opportunities —- and this has caused some friction. In the build up to and following liberalization, Fraport has been highlighted as the worst kind of former monopolist — one that continues to restrict competition at home and yet exports its own ground handling overseas. Ridiculous, says Fraport, which spends what it sees as too much time defending itself when it would rather get on with doing what it does best: using Frankfurt as an attractive reference 'model' for establishing an overseas network.

Ground handling not only remains an integral activity for Fraport but is also considered
a core competence given that fierce competition between international airports demands smooth aircraft handling.

Gérard Borel at ACI Europe would agree, as he says there is normally no real possibility for an airport managing body to guarantee a particular quality of service. Airlines that talk about deciding on the level of quality expected from a ground handler based on the overall image they want to portray are missing the point, he says.

Airports 3"This is a completely biased view of the functioning of an airport," argues Borel. "It is not the image of the airline but that of the airport that a passenger refers to when he has a problem with busses for embarking, or for the delivery of baggage at arrival."

The same applies inside the terminal with problems such as long queues at check-in desks. "The difficulty is that the airport managing body has no power to reduce these queues," argues Borel. "If the airline decides to rent just two desks, then you cannot oblige it to open four." No wonder Fraport wants to retain control.

Fraport continues to expand its network through its Aviation Ground Services & Logistics business development unit. The division took its first steps overseas in the mid-1990s with the acquisition of a holding in Spain's Ineuropa Handling, followed by a holding in Goldair Aviation Handling in Greece. Major progress followed with the establishment of Portway handling de Portugal — a joint venture with the Portuguese airports operator ANA — and the winning of a ground handling licence for Vienna Airport.

Elsewhere, through the specialist GSE company TCR International, in which it acquired a 50 per cent, Fraport is also present in Belgium, the Netherlands, France, and the UK. At Frankfurt Airport itself, Fraport's handling division operates in partnership with or has a shareholding in several companies, including Airmail Center Frankfurt, N*ICE Aircraft Services & Support, Perishable Center Frankfurt and Tradeport Frankfurt.

Fraport says that such an international network allows customers to enjoy quality, local integrated logistics services, neutrality, individual multi-station contracting and one-stop shopping. With this networking in mind, it signed an agreement with the Arab Air Carriers Organization in November 2000 for cooperation with a dozen Arab airlines at Frankfurt, Vienna, and elsewhere.

"We are experts in operating a hub with large passenger volumes in a small space," says Eric Malitzke, Director of Acquisitions and Joint Ventures. We have the experience of handling Lufthansa on the ramp over the last decades and also Star Alliance carriers in the last few years."

The varying pace of deregulation across Europe has played a role in the expansion policy. "In northern Europe, liberalization came earlier and the markets were already largely divided up," explains Malitzke. "Southern Europe was more interesting because liberalization was only just starting and it was possible to enter new markets with potential."

Fraport is now also looking at opportunities in the US and Southeast Asia. The US is characterized by a high proportion of self-handling by airlines and a number of local or regional handling specialists. "Market entry would be easier in the USA because it is liberalized but there is very strong competition," stresses Malitzke. Southeast Asia, in contrast, is characterized by monopolies or duopolies, and due to the extreme cultural differences to Europe, a strong local partner would be necessary, he adds.

Unlike many other European airports, Fraport has the ownership structure and experience to export its expertise. Not all the region's airports have such ambition, but it seems likely that other parts of the world will experience a taste of one of Europe's expansionist players sooner, rather than later.